Gold prices exploded to almost $3,400 amid London trading hours on Thursday. This increase was driven in large part by increasing anxiety over US-China trade relations. The precious metal jumped up to a new four-week high. This increase reflects growing demand for safe-haven assets as investors react to geopolitical tensions and negative US economic signals.
We can thank the recent jump in gold prices to a perfect storm of market factors. After finding support above a longer-term, upward-sloping trendline on a daily timeframe near $3,335, gold has rallied in an overall bullish, near-term trend. The 20-day Exponential Moving Average (EMA) gives additional verification to this bearish trend. As of this writing, it’s still on an upward trajectory at just under $3,317. Both the 14-day Relative Strength Index (RSI) has surged to approaching 60.00. This is indicative of a more bullish momentum brewing beneath the surface if it can rally back above this important psychological level.
Central Banks Increase Gold Reserves
Emerging economies, led by China, India, and Turkey, are making historic increases in their gold reserves as a hedge against global economic turbulence. In 2022 as a whole, central banks accrued a stunning 1,136 tonnes of gold – or about $70 billion worth. This number is equivalent to the largest annual net gold buying on record. It draws attention in particular to a marked change in these nations’ asset management strategies.
The trend for more central banks accumulating gold is their willingness to protect their countries’ economies from threat of financial crisis. With global markets under increasing strain, these institutions will have every reason to keep adding to their gold reserves.
Economic Indicators Influence Market Sentiment
The recent spike in values of the yellow metal has more to do with the United States producing some incredibly soft economic data. This well-known, historic collapse in private sector labor demand has led many to question the fundamental health of the US economy. In the last three weeks, we have seen a decline in 10-year US Treasury yields to about 4.35%. This dramatic decrease has opened the door for gold investment to thrive.
Wednesday’s plunging bond yields is the next clear indicator of investor concern about US economic conditions. As economic uncertainty prevails, many investors are turning to gold as a reliable store of value amidst fluctuating market conditions.
US-China Trade Deal Uncertainty
Further stoking the market’s unease is the continued uncertainty around U.S.-China trade talks. Former President Donald Trump released his vision for Truth just last week. He added that negotiating a comprehensive trade deal with Beijing is going to be very hard.
“I like President Xi of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!” – Donald Trump
On one hand, Trump’s comments give voice to the diplomatic potholes that make progress toward a resolution nearly impossible for both nations. With both tensions still palpable, investors are flocking to gold for protection against future volatility from trade wars.